Pier 1 2011 Annual Report Download - page 25

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT OVERVIEW
Introduction
Pier 1 Imports, Inc. (together with its consolidated subsidiaries, the “Company”) is a global importer and
is one of North America’s largest specialty retailers of imported decorative home furnishings and gifts. The
Company directly imports merchandise from many countries, and sells a wide variety of decorative accessories,
furniture collections, bed and bath products, candles, housewares, gifts and other seasonal assortments in its
stores. The Company conducts business as one operating segment and operates stores in the United States and
Canada under the name Pier 1 Imports. As of February 26, 2011, the Company operated 1,046 stores in the
United States and Canada.
Comparable store sales during fiscal 2011 and 2010 increased 10.9% and 1.5%, respectively, which was
attributable to increases in traffic, conversion rate, and average ticket over last year. Sales per retail square foot
were $168 during fiscal 2011, compared to $152 last year. Management believes that the Company’s results will
continue to improve as a result of its unique merchandise assortments, carefully managed cost base, improved
in-store experience and strong focus placed on the customer.
Merchandise margins for fiscal 2011 were 58.6% of sales compared to 54.8% of sales in fiscal 2010. This
improvement was the result of significantly lower markdown activity, strong input margins, and well-managed
inventory levels. Management remains focused on maximizing margins through negotiating advantageous vendor
costs and ensuring an efficient supply chain and related expenses.
Store occupancy costs for fiscal 2011 decreased $4.8 million from fiscal 2010. This decrease was
primarily attributable to the reduced store count since the end of last year coupled with the benefit from favorable
rent negotiations last year. The Company continues to evaluate every lease renewal in its store portfolio and
negotiate favorable occupancy rates in a continued effort to maintain low overall costs of its leased properties.
During fiscal 2011 the Company repaid $9.5 million of industrial revenue bonds related to the Chicago,
Illinois distribution center with proceeds received from the sale of the facility. In addition, all remaining 6.375%
convertible senior notes due 2036 were surrendered in full during the fourth quarter of fiscal 2011, and the
Company paid the holders all remaining principal and accrued interest. The Company ended fiscal 2011 with a
strong balance sheet consisting of $301.5 million in cash, $311.8 million in inventory, and $9.5 million in long-
term debt.
Profitability has been achieved, the Company has moved from playing defense to playing offense, and it
is well positioned to build on its profitability in the future. On April 7, 2011, the Company announced a three-
year growth plan to drive sales and further improve profitability in order to increase shareholder value. The plan
includes investing in the acceleration of e-commerce initiatives, existing store improvements, expansion of the
store portfolio, and development of infrastructure and technology to enhance business processes and efficiencies
throughout the entire organization. The Company plans to invest approximately $200 million over the next three
years in these initiatives, utilizing cash flow from operations. Additionally, the Board of Directors has also
approved a plan to return value to shareholders by authorizing an initial share repurchase program of up to $100
million.
The Company plans to grow sales and profitability by developing an online business to complement its
well-performing store base. The Company’s e-commerce initiative will enable it to grow from a single brand,
bricks and mortar retailer into an extended brand, multi-channel retailer. In-store merchandise availability on the
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